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Saturday, December 3, 2011

The return from Thanksgiving break brought upon a whirlwind of news and changes for Celsion, directly and indirectly impacting shareholders, employees, global clinical collaborators, and just about any other stakeholder with an interest in the company. I have waited patiently, trying to digest everything as it happened, before taking an opinion on what has unfolded recently. Needless to say, there has been a lot of news, and understandably, lots of investor confusion and, perhaps, apprehension. I would advise readers right here to take a deep breath; things are not going out of control by any means. It all boils down to three very simple words that I know have been central tenets to this company, and I hope, they remain that way.

Science

Leadership

Transparency

Let's start with the Science, and dive right into the interim analysis.

Much has been discussed about the outcome of the interim analysis. Well, the DMC formally recommended the trial to continue after a review of 613 patients, with a total of 219 progression-free survival events, a great outcome no matter how you look at it. Absent two small Phase 1 trials with a total of 24 patients and largely incomparable data, this is without a doubt a resounding endorsement that ThermoDox is delivering on its promise, as I have outlined in detail in my prior scientific overview article. The 219 figure was much higher than I thought, but I have gone on record many times saying I was confident that the interim would include >190 events. There seems to be a consensus from the models I have seen that the median PFS time (months) for the entire trial population is in the mid-20's, let's say 24-25. I think we can assume with certainty that the control arm of the trial, a central focus of the articles on my blog, is performing much better than the 12 months management has projected. Had the control arm been 12 months, undoubtedly the DMC would have made a recommendation to halt the trial.

What we do know, however, is that something has changed significantly in the tone of the company, and I would argue, this speaks to the strength of the data underlying the DMC analysis. Recall as I summarized in the Q3 cc write-up, management was heavily emphasizing that they would not do anything to sully the respect/credibility they have earned from global regulatory agencies in how they have conducted and executed the HEAT trial. The company, in many ways, was speaking to Mangrove Partners' verbiage from their original 13D filing, in which they proposed the company seek a SPA modification to take a "second look" at the data in the event that the interim did not justify a halt. At the time of the 13D, and re-emphasized during the Q3 call, the company all but dismissed such ideas. For the conservatism expressed at the time, I applaud the company.

Well, if the company's mantra has been adhering to the Special Protocol Assessment (SPA) agreed to between the company and the FDA, we now see a much more drastic change in direction, and it is a great sign I would argue.

Celsionalso announced today that the DMC, in its review, followed a statistical boundary determined by the Company using the Lan DeMets implementation of the O'Brien-Fleming spending function. This approach allows for the Company to conduct additional interim efficacy analyses prior to final data read-out at 380 PFS events with no increased risk of statistical penalty. The additional analyses may allow for earlier stopping of the study. Additionally, based on its internally modeled estimates of PFS events, Celsion reconfirmed that 380 PFS events are projected to occur in late 2012.

"The DMC's unanimous recommendation is a significant achievement for Celsion based on the most comprehensive review of the HEAT Study to date, including the first-ever review of efficacy results," said Michael H. Tardugno, Celsion's President and Chief Executive Officer. "Critically, we have the potential to realize a successful outcome to the study prior to its planned completion. We are encouraged by what may be sufficient rationale for conducting an additional preplanned efficacy review prior to the 380 events called for in our protocol, and will seek to amend our Special Protocol Assessment Agreement with the FDA accordingly. We thank the DMC for their work and thorough review, and are grateful for the continued support and enthusiasm from the healthcare community, regulators, our investors and our employees."

What is not clear from this PR is whether or not the Lan DeMets implementation was just now introduced, or was this the agreed to protocol in the trial's statistical analysis plan (SAP)? From my understanding, with Lan DeMets, they can conduct as many interim analyses as they would like, but will have to pay an alpha penalty (contrary to what the PR says). What the company needs to elaborate on is, where did the "sufficient rationale" come from? Is that simply a function of using Lan DeMets, or was that a loud and clear endorsement from the DMC that the data is probably very, very close to the boundary? I would think the latter, but this ties into my "transparency" section later on. The summaryfrom this link is quite an interesting read on Lan DeMets, in that it clearly says Lan DeMets is used when the trial is "close to crossing the boundary." I think the PFS data is likely very strong, but just missed the required statistical threshold needed for an interim halt, hence, the sudden change in tone to approach the FDA and modify the SPA to get a second look at the data.

While on the topic of the interim and potential additional looks, if we assume the company hit 219 events in mid-September, and they once again maintain that 380 events would occur in late 2012, let's say, November, that is 14 months away from September. With 380-219 = 161 additional events remaining, divided by 14 months, we get roughly 12 events per month between now and then. That would imply that as we hit mid-December, we should be at around 255 events. If a second look is agreed upon by the FDA, it is very likely that could come at ~300 events, the mid-point between the 219 and 380 for final data. Folks, very realistically, we could have another look at data within 5 months maximum. Mr. Tardugno's quote from above indicates there is a very real chance that the next look could bring the trial to a conclusion. That is certainly a far cry from prior public comments around the first interim analysis, in which a halt was "unlikely."

The interim, for the reasons mentioned above, is a major accomplishment for the company, a critical milestone no doubt. I was surprised by the knee-jerk, "give me my toys now", mentality the market reacted with when the news was released. Of course, if things were only about the interim analysis this past week.

Leadership

One of the reasons why I have been so attracted to Celsion is my positive impression of management to date. Certainly, the company has made promises on timelines that were at times, borderline ridiculous, starting with enrollment of the HEAT trial (to be fair, many biotechs suffer from the exact same problem). Of course, it hasn't just stopped there, the timing of the interim analysis ("September to "Q4"), IND process for the Philips/HIFU trial, update on the DIGNITY study, and more recently, the ABLATE trial, have all been delayed it seems once again (see my prior article on end of year catalysts). ABLATE, their randomized, Phase 2 trial of ThermoDox in colorectal liver metastases, was supposed to start enrolling upon completion of the HEAT study enrollment, which occurred in August, not a peep from the company on this, and here we are in December. In fact, Mr. Tardugno at the Rodman & Renshaw conference said he is hopeful the ABLATE trial would enroll its first patient by the end of September. You get the drift here.

So, what is my point with all this? Well, with good leadership comes a certain "benefit of the doubt" that supporters are willing to afford the company. Many, including myself, have given the company the benefit of the doubt in many instances. The issue in Japan, for example, is one such area where I strongly backed the company, and gave many reasons for doing so. I have since reached out to the company in several instances asking what potential new trial design they are expecting for the "new" trial their partner, Yakult, will be conducting in Japan, and have heard nothing, and we have received absolutely nothing on any of the recent calls (this ties to my questions outlined for "transparency" below).

Part of the benefit of the doubt discussion also ties into the recent dilutions we have seen. Yes, I understand the company needs funding, as exemplified by 3 financings earlier this year. As their CFO has stated, they touted to raise "at 52 week highs" when the stock was in the 4's, which implies that a raise at 52 week lows can be viewed as none other than sub-par. Well, following the interim analysis, we got exactly that, another dilution, at near 52 week lows. It is beyond me why the company would say at the recent Q3 cc that they have enough cash to last them through all 2012 milestones, and immediately after raise money under what by all accounts, represent sub-optimal terms.

Some of the biggest areas the company will need to laser focus their leadership pertains to a second license deal for ThermoDox (which like the other milestones mentioned above, has been significantly delayed), commercial manufacturing, and initiation of the rolling NDA (let's see if that end of year estimate for that happens). Commercial manufacturing capabilities appear to be progressing well, as 3 registrational batches should be complete by year's end. Depending on the terms of the deal, the NDA is also heavily tied to the 2nd license deal, as their potential big pharma partner would play a strong role in supporting the NDA submission. Make no mistake, completing an NDA is not for the faint of heart, and having a partner handy for that is critical for Celsion (not to point fingers, but Exhibit "A" on that is Delcath).

Admittedly, I was one of many shareholders convinced that the interim analysis would be followed by a second license deal, hence, negating the need for cash since such a deal, depending on its size and scope, would have a considerable upfront cash component. The clearance of the interim removes a significant amount of risk for a potential partner, and as I said above, if the data was "borderline halt", a partner should be all but ready to sign on. In fact, CEO Mr. Tardugno made a very clear reference to this in the Q1 conference call earlier this year, saying, "We're hopeful that following this interim analysis we can find terms that would represent the appropriate basis that would lead to a license. That’s all I’d like to say at this point." Mind you, this second deal has been promised to be completed in 2010, let alone 2011. So yet again, we have another broken promise. Mr. Tardugno has also in the past made many remarks about the importance of credibility for developmental drug companies, and I would respectfully submit to him that repeated broken promises is a sure of way of slowly losing credibility. From my perspective, the "benefit of the doubt" allowance has been entirely exhausted by the company.

While talking about leadership, I think it might be a good time to discuss the recent drama brewing between Celsion and its largest shareholder, Mangrove Partners (related to this mess, I assume, are the company bylaw changes and executive termination agreements that were recently filed as well). As many of you know, I recently interviewed Mangrove Partners' founder, Nathaniel August, and he has never been one to be shy with words. Recall during the Q3 call that Mr. August vehemently tried to put the CEO on the spot to "be accountable" if the study's final data read-out does not occur by the end of 2012. As I would assume there are legal teams looking into this as we speak, I am not going to provide too much commentary here other than to summarize exactly what happened:

Mangrove approached the company to participate in the recent direct offering

Celsion agreed, but, as outlined in the recent 8-K "proposed as part of the negotiations that Mangrove enter into a customary standstill agreement." This "agreement" submitted by Celsion to Mangrove, to date, has not been released to the public.

Mangrove "took the bait", if you will, and in his words from the 13D/A, "I did continue to negotiate to see how far he [CEO] would go"

Mangrove ultimately declined to participate in the deal, and sent the Celsion board a scathing letter which, among other things, asked the company to assign two designees of Mangrove Partners to the Board, hire an independent bank to explore all strategic alternatives, set goals for management that carry the potential for termination, and review the actions of management "in their attempt to silence a stockholder."

In effect, Mangrove is accusing the company of bribery, in his words, the "basest of actions." From my own personal interactions with Nathaniel August over the past couple days, I can assure you he is genuinely upset.

In the 8-K cited above, Celsion rebutted, and specifically made clear that they would not follow any of Mangrove's recommendations.

Now, how all this plays out will be very interesting. On the one hand, Mr. August owns a considerable portion of the company, so the company has to walk a fine line. However, I think it is very clear, from the very first 13D, that Mangrove all along has wanted to play an "active" role in Celsion's day to day operations, suggesting a SPA amendment among other things, well in advance of the interim analysis. Clearly, Mangrove is still interested in the prospects of the company, and this "bribe" accusation certainly does allow him an opportunity to put an even more pressure on the company. Understandably, he has reason to be frustrated with management, as I have mentioned above, I do as well. However, whether or not the "standstill agreement" will be viewed as a "bribe" is yet to be seen. My personal suspicion is that such deals happen all the time in Wall Street, and are tacitly understood by the "players" involved. I also do believe that Celsion management is trying to keep Mangrove Partners at bay as much as possible.

My primary concern is that this whole mess, and that is the only way to describe it, does not impact the commercialization prospects of ThermoDox. The company owes it to their employees, their global collaborators, physicians, and most importantly, patients.

Transparency

The company has prided itself on transparency in the past (they have been very transparent with me, sans a few exceptions in which emails went unanswered), so, this section of the article will simply be a list of questions I am personally asking management to answer and clarify for us all. I will go on the record saying that a few weeks back, I personally reached out to Celsion CEO Michael Tardugno for an interview that would be made available to my blog visitors (I have yet to hear anything back, and understandably, probably won't for a while). In the wake of the Mangrove mess, transparency from the company resurfaces as more important than ever. Whether it's via interview, email, or any other communication method, what is most important is that we get answers to the following questions below, which I know many fellow shareholders have in mind:

When was the Lan DeMets implementation decided upon, and who decided on that (company, DMC, FDA)? Was this part of the original statistical analysis plan (SAP) or was this something newly decided during the interim analysis? Did the DMC make this recommendation?

What exactly does the company mean by "sufficient rationale" to conduct another interim look? Was a second look a specific recommendation made by the DMC on the basis of the strength of the data? Or is this entirely an assumption of the company looking at blinded data?

(12/4 Update) The company historically has maintained an estimated 12M time for the control arm PFS. Having gone through the interim, has the company adjusted this internal working assumption?

What is the proposed timeline for modifying the SPA with the FDA? Has the company initiated this process already?

Will the company PR when a decision is made on the SPA amendment?

Assuming the SPA is amended, when would a second interim took place? Specifically, how many PFS does the company expect would be needed for the second look?

Would a second interim look be dependent on a particular number of OS, rather than PFS, events? If so, how many events?

How many OS events were in the interim analysis? Clearly, some of the PFS events might be deaths, but OS events are likely to be much lower.

Where does HEAT enrollment stand today? When does the company expect to complete the planned enrollment in China? When does the company expect 700 patients to be enrolled? Will these events be PR'd?

The company has provided not a single meaningful update on Japan for the past 6 months. Exactly what potential trial design revisions does Celsion expect will be introduced into the separate study of ThermoDox in Japan by Yakult? Is there a possibility for a lower dose of ThermoDox to be tested? The company must have some working internal assumptions about what Yakult is planning.

When exactly is the new trial in Japan set to start?

Where exactly do we stand in potential negotiations with partners for ThermoDox? What specific geographies is the company considering for such a deal, and would it include all future ThermoDox indications? Are there any specific milestones partners are waiting for before signing a deal(s)? Please elaborate with as much detail as possible.

What is the status of the ABLATE study? The trial has been on ClinicalTrials.gov since early November, but no PR as of yet for treated patients.

(12/4 Update) What is the company's expectation for the performance of the control arm in this study (local recurrence at 1 year)?

(12/4 Update) What is the status of the Philips HIFU trial? A recent Rodman & Renshaw analyst report (See Street/Other Stock Coverage Section) put a Q4 2012 timeline for this trial to initiate. How does the company reconcile that with prior estimates that the trial would begin in 2011?

What is the status of the DIGNITY study? Will this be opened up to other cancers or introduced as earlier line therapy?

Concluding Remarks

I apologize for the length of the article, but there was much to be discussed at this juncture. Let me be very clear in that I remain extremely optimistic that the HEAT trial will be a success. In fact, I would place the odds of a successful trial to upwards of 80% at this point. So, the science is absolutely there, as I have argued here, and argued before. What needs to be ensured moving forward is strong, effective leadership, and a commitment to remain as transparent as possible to all stakeholders involved with the company. With the interim cleared, commercialization of ThermoDox is well within reach now. Moving forward, however, management has their work cut out for them, as there remain several, unaccomplished milestones needed to truly transition the company to a potential oncology powerhouse. I look forward to seeing the Celsion story unfold further, and you can bet that I am holding my shares very tightly through the bumpy roads that might be ahead.

4 comments:

Thank you so much for your knowledge shared. I am a non-poster, non-poster simply because my level of knowledge is rather infantile compared to the very apparent knowledge exibited in the analyses posted on the boards. If I can be so presumptious,would you send me a way to contact you, with great rarity of course or would this comment window get your attention? My email is thomlazar@hotmail.com Thank you again for your fantastic insights.

1. Why did you decide to offer a PP at that price level? What do you say to retail investors who feel like this move was to line the pockets of those close to Celsion, while leaving us with enormous losses?

2. You stated Celsion would talk with the FDA about amending the SPA to include another interim analysis. Can you elaborate why you would do this? Was this Celsions idea or are you trying to calm down Mangrove or other investors. If this turns out to be just a smoke screen to try and keep the SP from tanking will you step down?

3. Why do the financing now? Celsion has enough cash to carry them for months. After the IA and lack of clarity, wouldn't it have been better to announce a financing deal when the stock is not tanking?

4. This company promised investors to be open and transparent. After the Mangrove accusations & and terribly low financing deal it seems to be the complete opposite. What do you say to investors who feel like we’re being betrayed?

5. If the deadline for the PHIII Heat trial is missed in 2012 I see no reason you should still retain your position as CEO. Do you agree and will you agree to step down if that deadline is grossly missed?

6. What do you say to potential investors who look at the recent trend in SP. What are your next steps to get the SP out of this trend. In one year from now, what do you believe Celsion will be conservatively valued at?

Firstly, Thanks for all you do. I am grateful to have a thorough blog like yours to help me navigate the complex particulars of investing in a company. That being said, you are somewhat of an expert on CLSN. any questions that you come up with would likely be superior than ones I could propose.

Still, since you did request suggestions, I would firstly like to better understand managements decision not to release detailed data or analysis to the public during interim analysis. It would seem to me that the release of such data would reduce speculation, increase transparency, and probably boost the share price. I would also like to understand the reasoning behind the recent financing. Why finance at such a low price? In light of the recent financing, should investors lower their expectations of any potential near term partnership?Lastly, I would like clarification on all this talk about additional interim analysis. What, specifically, would be the rationale for doing this? When and how will the decision be made?